With Fannie Mae suing insurance carriers over coverage for the $140 million fraud at U.S. Mortgage/CU National Mortgage, credit unions victimized in the scandal are wondering whether any recovered funds will be used to compensate them for their losses.
"Fannie Mae did not inform us that it would be taking this action and its implications are yet to be determined," said William O'Brien, president of New York's Suffolk Federal Credit Union, which is suing Fannie Mae for the recovery of $34 million of its mortgages CU National fraudulently sold it.
"However, if this lawsuit against insurance carriers means that Fannie Mae is taking steps to make whole Suffolk Federal Credit Union and the other credit unions whose mortgage loans Fannie Mae refuses to return, that would be a very welcomed development," he said.
Still, CU executives hurt by the fraud doubt that's what Fannie has in mind.
Up to now, the GSE has resisted all efforts to give back the mortgages, claiming in court filings it was also duped by the fraud.
Fannie Mae filed suit Wednesday against nine insurers claiming the return of mortgages to more than 25 credit unions could cost it as much as $108 million. But officials with the secondary mortgage market giant declined several requests to explain their stance regarding the credit union mortgages.
The former president of U.S. Mortgage/CU National, Michael McGrath pleaded guilty last year to selling $140 million worth of mortgages his firm was servicing for 28 credit unions to Fannie Mae and keeping the proceeds to finance the failing mortgage company and for personal use.
McGrath subsequently told authorities he gambled most of the proceeds form the Fannie Mae sale away on the stock market. As part of a plea bargain with prosecutors McGrath has agreed to forfeit about $13 million worth his own assets. That leaves the credit union victims as much as $125 million short.
Several of the credit unions have filed suit against their bond insurer, CUNA Mutual Group, in an effort to enforce their bond. CUNA Mutual has reached settlements with several of the credit unions but the terms of the settlements are confidential.
